WUEG October 2015 Newsletter

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October 2015 Petrobras has seen its credit rating fall to junk status, its market capitalization drop from $220 billion to $30 billion, and its legal troubles pile up as Pimco, the Gates Foundation, and other plaintiffs open large suits against the gas giant. The firm has written off approximately $17 billion in losses from overvalued assets and graft. The significance of Petrobras’s fall from grace cannot be understated: 13 percent of Brazil’s GDP comes from its energy industry, of which Petrobras controls 85 percent. Compounded with a devalued Real (R$), high unemployment, and low global oil prices, the effects of the scandal have created a perfect storm for Brazil’s economy. Besides deflating prospects for the success of the BRICs, the Petrobras saga should also serve as a cautionary tale for energy investors and government bureaucrats alike. State-owned energy companies that lack strict corporate governance are not sustainable for investment or success. Countries appropriate energy commodities with the intent of barring foreign manipulation or ensuring public welfare, but for many LDCs, these mild goals are rarely preserved (China will provide Petrobras with $2 billion in financing over 10 years). Instead of preserving sovereignty and equality, energy state-owned enterprises (SOEs) damage accountability and encourage misconduct. When a government owns a majority stake in a company, firm executives are encouraged to please and forge close relationships with the politicians who fund their operations. As the incestuous connections between company leaders and government officials grow stronger, the ease of successfully getting away with corruption becomes obvious: those responsible for auditing the firm can choose to conceal illicit activities from government oversight. While corruption is certainly possible in private enterprises, SOEs reduce the degrees of separation between self-serving parties and make wrongdoers more immune to effective monitoring. In developing economies, the risk of corruption within SOEs is especially high due to a lack of reliable corporate governance. Countries like Brazil rarely hold companies accountable for their actions and typically refrain from prosecuting wrongdoers. In the case of promising (or oncepromising) developing economies like Brazil’s, energy investors should consider whether concrete action has been taken to address faulty legal and corporate systems. Without improvement in the way companies are operated and held accountable in less-stable markets, energy SOEs in developing countries are not safe for investment. In the wake of the Petrobras scandal, an anticorruption commission has pledged to implement new legislation to improve corporate governance and tackle illegal behavior. Whether these promises materialize into real progress is still to be determined; whether the changes are vital to restoring investors’ trust in Brazilian energy is unquestionable. Sources: Wall Street Journal BBC New York Times The Economist Forbes whartonenergygroup.com 6
October 2015 Sustainable Startups StoreDot: Can an Alternative Energy Startup Reinvent Smartphones? Emma Dong – Member, Academic Committee Technology startups have been booming as the idea of horizontal integration across Silicon Valley entices entrepreneurs. Companies like Apple and IBM entered the tech industry with the goals of leading the markets of personal computers and computer chips, respectively, and they have since developed into frontrunners of their fields. Doron Myersdorf founded StoreDot in 2012 with the intention of developing a novel phone battery that would reinvent the way we use our phones. StoreDot is a startup run out of Tel Aviv University in Israel that uses chemically synthesized organic molecules to create a FlashBattery that could be used smartphones and electric cars. Testing to date shows that these batteries are 90 times faster and last 4 times longer than a traditional battery. The smartphone FlashBattery fully recharged a Samsung Galaxy S4 in 60 seconds, and the electric car battery can provide 300 miles of charge in 5 minutes. StoreDot claims that using a biological semiconductor as opposed to a lithium-ion battery yields safer, more cost effective, and more environmentally conscious results. StoreDot currently has over $66 million in funding from sources including Samsung’s venture capital division and Russian investor Roman Abramovich. However, although the technology of these batteries is being optimized, it may not be successfully utilized in the consumer market. Predicted Consumer Reception of StoreDot’s FlashBattery Projected costs of these batteries are 30% more than traditional models even though the substrate in the battery is cheaper and contains more readily available materials than lithium-ion batteries. Thus, utilizing this technology would result in a $100 increase of a phone’s retail price. StoreDot has been leveraging the capabilities of the organic quantum dots to produce more vibrant displays and higher color intensity to attract consumers. As a result, their product offers prolonged battery life, faster charging abilities and more vibrant displays. These are 3 qualities that companies recognize that consumers prioritize: every Apple and Samsung phone update has included improvements in these areas. However, StoreDot is marketed as a flash memory device and focuses on utilizing quantum dot technology to improve supercapacitor and battery function. Therefore, the advancements StoreDot’s technology adds to battery life are irrelevant because most consumers upgrade their smartphones before the battery of their phone has completely discharged. Additionally, StoreDot’s improvements to screen quality are uncompetitive because they don’t align with the current trend of improving pixel count in image resolution. The push to improve resolution since Apple’s implementation of Retina Display has resulted in research solely focused on optimizing displays through pixel count, making StoreDot’s color quality technology uncompetitive. As a result, the only significant contribution StoreDot’s FlashBattery makes to consumer quality is decreasing charging speed to maximize the amount of time users can spend on their phones. However, this can result in an additional $140 tagged onto the retail price of a smartphone when cheaper alternatives like whartonenergygroup.com 7
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WUEG October 2015 Newsletter

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